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Practically every investor has an opinion on how the euro zone should dig itself out of its crisis, but few have a proposal as straightforward as that of the legendary money manager Pierre Lagrange, co-founder of London hedge-fund firm GLG. Lagrange believes that the euro zone could solve its problems quickly and simply, by having the European Central Bank conditionally guarantee the bonds of its member nations in financial difficulty.

Specifically, Lagrange proposes that the euro zone guarantee the future long-term debt of its sovereign governments, if they achieve their budget- and deficit-reduction targets within a specified period of, say, five years. The schedule would vary by nation, much as ordinary debtors have different debt schedules in restructurings; if the sovereign misses the targets, the guarantee vanishes. He would also like to see the ECB guarantee short-term debt in return for a member nation paying a fee in the area of 0.5% a year. The latter idea came from Italian banks, which were eager to pay 0.8% for a sovereign guarantee earlier this year. He believes that this would address the problem of moral hazard, buttress the financial system, give governments time to implement the reforms that investors demand and, ultimately, reduce government meddling in the markets.

THE LANKY, SOFT-SPOKEN LAGRANGE, 50, whose firm is a unit of $53 billion-in-assets
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(ticker: EMG.U.K.), developed the basic concepts while "trying to understand how much of what I do is actually being put at risk by what governments are doing."

Hedge-fund chief Pierre Lagrange says governments' incessant intervention in the markets creates so much risk that "it is a nightmare."
Steve Marcus/Landov

In a recent interview at Man's New York offices, he added that euro-zone officials are "very proud of how much they've done over the past two years…but it is a complete misunderstanding" of the market's needs. Incessant intervention creates so much risk that "it is a nightmare."

Is his proposal legal? That's debatable, the fund chief acknowledges. It is certainly more radical than palliatives unveiled by euro-zone authorities, such as a euro-zone banking regulator, since Lagrange wrote to investors about his proposal in late June. The legality of the U.S.'s Troubled Asset Relief Program, a/k/a TARP, was questioned during the 2008-2009 financial crisis, but legislators passed it. Lagrange's proposal could be executed by the proposed European Stability Mechanism and funded by the ECB.

In a tough period for hedge-fund managers, Lagrange's European Long/Short fund was up 5.4% in the six months through June, versus 1.8% for the Eurostoxx index. In the five years through the same date, it advanced 4.7% annually, while Eurostoxx fell 12.6% a year. Partly as a result, even as asset growth has suffered at Man this year, the GLG operation that it bought in 2010 has pulled in assets, which now total $26 billion.

SOLVING EUROPE'S TROUBLES might gain urgency once spreads between the yields on German bunds and the peripheral nations' bonds widen so much that a sovereign fails, or when the debate over what to do grows more fierce, as seems likely before Italy's general election early next year, he says. Italian Prime Minister Mario Monti won't serve again, suggesting that other leaders will come forward, including, Lagrange says, possibly one who will point out "that the reforms and the speed at which they're needed are killing the corporate sector."

Borrowing costs for Italian companies are much higher than for comparable German corporations. "Some people are going to fight and say there's an alternative," including exiting the euro zone, he adds. But unlike Greece's economy, he insists, Italy's "could actually stand on its own." Another thing he says might help: Greece's exit from the euro zone and a possible planned re-entry, with conditions.

After GLG was acquired, Lagrange became chairman of MAN's Asia operations. He has traveled monthly to the region, where GLG is preparing long/short offerings. In China, companies are cautious about spending before the 18th Communist Party Congress leadership change in the fall, particularly following the upheaval that accompanied the disgrace of former official Bo Xilai. At the same time the government has kept credit far tighter than investors had hoped.

When this transition is over, China will rebound, he predicts: "It's one of the best places on earth for growth, It is the right time to start looking at more consumer-specific stories in China."

While he wouldn't name any, he likes logistics, e-commerce, health care, and education in general. Lagrange isn't a huge fan of China's big banks, saying "We are puzzled by financials because we can see that the loan growth is going to be in line with GDP growth and not more." The Asia fund is focusing on China, Korea, Hong Kong, the Philippines, Singapore, and Taiwan.

Lagrange is also a well-known art collector, who sued New York's now-defunct Knoedler Gallery for allegedly selling him a fake Jackson Pollock painting. The litigation is continuing, but he remains passionate about art. In Asia, Lagrange is finding lots to like, including a South Korean collage artist who is expanding his artistic horizons.

And what of India, another ancient civilization that investors watch closely? Lagrange is keeping a wide berth. "So few people are really able to make money out of India." he says, noting it remains "a mystery."